TTD Stock Split: Trade Desk Announced 10-1 Stock Split After a Fantastic Run
As generally portrayed, the split was meant to make the stocks more accessible to the general public. Both the companies had run up so much in the trailing 12 months that share prices crossed $561 for Trade Desk and $626 for Nvidia Corporation.
Stock splits are back on the screen after being eluded by the company for nearly two decades. Every big company announced a stock split in the last couple of years. Some notables are Amazon Inc, Alphabet Inc (both announcing a 20:1 stock split), Apple Inc, and Tesla Inc. It is believed that stock splits do give a short-term bullish push to the stock and hence management approves stock splits for one or another reason.
In this article, we will specifically talk about the stock split of the Trade Desk and discuss the reasons and motives behind the same. We will also cover the possibility of a future TTD stock split.
|S.no||TTD Stock Split Date||Ratio||Price (Close)||Price (on the previous day)||Change|
|1||June 17, 2021||10:1||$62.14||$590.2||5.28%|
TTD Stock Split: Reasons for Recent 10:1 Stock Split
Trade Desk holds a leadership position in the advertising industry. After debuting on the US stock market in 2016, it had a fantastic run in the past five years. In this time period stock has given more than 700% return. It tells the story of the success of the management. It highlights the ability to generate revenue and profits consistently year over year.
Here are the numbers to prove the same. Trade Desk revenue has increased four times in the past four years, and income has increased twelvefold in the same period. Even in the times of Covid 19, a period of global slowdown, the revenue increased for Trade Desk by about 26% and it picked up sharply as the year ended. Ad spending by the clients increased in every geographical region the Trade Desk is present.
These numbers show how successful the Trade Desk is as a business, and a TTD stock split is just another way to demonstrate that. Stock split shows the confidence of the management that as the share price has run up so much in a trailing couple of years, and can touch the heights again in the future, it is better to split the stock and make it more accessible to the retail people.
Also Read: Nvidia Stock Split
At this point, it needs to be reiterated that a TTD stock split in itself does not increase the value of the stock and the company in any possible way. For Trade Desk, the stock was trading around $600 pre-split and the 10:1 stock split has only reduced the share price by a factor of 10 and in return increased outstanding shares by a factor of 10. It has no effect on the market capitalization of the company. However, it does create a physiological impact on the retail people to catch the shares at “low value” and hence it does provide a short-term bullish push to the stock.
Another reason for the Trade desk to announce a stock split is its intention to catch a berth in the Dow Jones Industrial Average. There has been raced among the booming companies to enter Dow Jones Industrial Average. As of today, no advertising company is in the index. The trajectory of growth for the Trade Desk can make it the first company in this sector to enter the prestigious index. But to enter the index, the share price should be in the range of $100 as Dow Jones is a weighted index, and a share price of $600 (pre-split price) will make it too heavy for the index.
TTD Stock Split: Latest Video
TTD Stock Split: Trade Desk Stock Buying Opportunity Based on Split
It has been seen that retail people do jump on the stock post-split. But for TTD, the split is not the only reason to include it in the portfolio. It is a fantastic profit-making company that is growing leap and bounds in terms of revenue and profit. In the trailing nine months, ended September 30, 2021, revenue increased to $800.8 million, up 55% from the $516 million it reported the previous year. The revenue increased from $45 million in 2014 to $836 million in 2020. More importantly, the operating profit has grown from $1 million to $144 million in the same period.
The point is not the reason to decide whether to buy a stock or not. It is immaterial in the context of this decision. It only provides a short-term push to the stock. A company’s fundamentals along with ratios such as price to sale, and price to earnings are more important to decide the same. For Trade Desk, the ratios are high.
For example, the P/S ratio is 37.92 and the P/E ratio is 149.77 as of January 2022. Although these ratios have cooled off due to the recent sell-off in the global market, they tend to be towards the higher end of the spectrum over the trailing five years.
TTD Stock Split: Possibility of a future Split
While it is prudent for the management to think TTD stock split in presence of strong fundamentals and firepower to drive the stock further to new heights, the ratio has surprised many analysts. 10:1 split ratio has bought down the share price in the range of $50s which does not appear good for a successful company. Nvidia Corporation having almost the same share price pre-split, has gone for a 4:1 stock split to take the share price in the range of $125.
While the ratio is important because when combined with the recent sell-off, the share price has gone in the range of $40. On 24th May 2022, Trade Desk stock fell 18.51 % on the backdrop of a huge sell-off of the US stock market. Nasdaq index fell more than 3%, and companies like Alphabet fell more than 8% in a single day.
The share price in the range of $40-50 reduces the chances of a future split. For a split to take place (at least 2:1), the share price should touch $100, which is highly unlikely in the current scenario of bad global cues. The days of exponential growth for the Trade Desk seem to be over with the recent results and guidance of Snap (SNAP) which has taken the stock down by 43% in a single day and for the same reason.
Trade Desk is down by about 18.5% and therefore it is safe to say that the share price will not be able to double any time soon hence the possibility of a future split a couple of years down the line is very minuscule.
However, the Trade Desk is a fantastic business with strong fundamentals and it is a good investment for long-term growth.
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